TEAM EMPOWERMENT MORTGAGE CHATTER:Jan. 5: Primary dealer changes? Commercial debt issuance; not the best of news for residential originations; 3 QUESTIONS YOU MUST ANSWER BEFORE BUYING A HOME

“I will tell you how to become rich. Close the doors. Be fearful
when others are greedy. Be greedy when others are fearful.”  Warren Buffett: 
Investor, billionaire, and philanthropist

The new Congress takes over today, and as was mentioned yesterday, has a lot of fiscal clean up to do. Of course, this is the same with every year’s Congress, but we keep hoping for something new. On of the huge issues is the deficit, which in turn correlates to the size of the regular Treasury auctions. A ”

primary dealer” is a designation given by the Federal Reserve System to commercial banks or broker/dealers who meet specific criteria, including minimum capital requirements ($150 million) and participation in the Treasury auctions. Currently, there are 18 primary dealers in the U.S. government bond market, including Goldman Sachs, Jefferies, Barclays, HSBC, Morgan Stanley, and J.P. Morgan. It is a nice thing to have on your resume for a variety of reasons, and the last new primary dealer was Nomura in mid-2009.

Maybe things are not so great, as Caroline Baum (Bloomberg) points out. “Homebuilder sentiment, new home sales and single-family housing starts, which, in that order, lead the complex of residential real estate indicators, are bumping along the bottom…There was a brief incentive-driven pick-up in sales in 2009 and the first half of 2010 that faded the minute the home purchase tax credit expired.” Aside from that, she points out, the news has not been rosy, nor will it be given the mediocre demand versus the high inventory of unsold homes and potential increased supply. “The U.S. just experienced the biggest speculative boom/bust in housing in history, a massive outward shift in the supply curve.

For mortgage applications

, the numbers did not do much for the last couple weeks of the year. Per the MBA, whose survey covers about half of all U.S. retail residential mortgage originations, the seasonally adjusted index of mortgage application activity rose 2.3% for the week ended December 31 and dipped 3.9 percent in the prior week. Refinancing is hovering around 70% of all apps – and if/when rates head higher, that will, of course, drop.

HUD sent out another Mortgagee Letter , 

providing “loss mitigation guidance for the resolution of Home Equity Conversion Mortgages (HECM) that are delinquent due to unpaid property charges and mortgages wherein due and payable requests were previously deferred by HUD.1.”

After a couple days of being unchanged, we were seeing a little improvement in rates this morning – until the ADP employment numbers came out showing a much stronger than expected private jobs number. Yesterday’s Fed minutes did not move the market much. “Federal Reserve policy makers said that improvements in the economy did not meet the threshold for scaling back their plans to purchase $600 billion in bonds to help bring down the unemployment rate and stop inflation from falling too low” as one source put it – pretty much anticipated. In other words, the recovery is still weak, and needs stimulus.

As one would expect, heavy corporate bond issuance is affecting Treasury prices, which in turn impact mortgage rates: before bond deals are announced, issuers and underwriters often sell Treasuries to hedge their interest rate risks. But once a deal is priced, its participants often buy up Treasuries again. Factory orders for November were pretty strong. The 10-yr yield closed at 3.33%.

For today we have already had some news to move the markets around. ADP, who monitors jobs in the private sector, showed an increase of 297,000 – the 11th monthly gain and the largest jump that ADP has seen. Later this morning we’ll have some ISM non-manufacturing data, but this strong ADP number is setting the tone. After the news the yield on the 10-yr is hovering around 3.40% and MBS prices are worse .250-.375.


1. Why should I buy if house prices are still depreciating?

We believe that in most parts of the country prices will in fact soften in 2011. Price is the major concern for anyone selling a home. When you are buying, COST should be your primary concern however. Your monthly payment (cost) is definitely impacted by the price of the home you purchase. The other major component is the interest rate. Waiting for prices to bottom out while rates are increasing can wind up costing you more over the life of the mortgage

Over the last seven weeks, rates have increased over 1/2 a point going from 4.17 to 4.86. Looking at the attached chart shows this increase. Waiting for prices to bottom out seems to make perfect sense. Yet, at a time when rates are increasing, it might NOT make sense. Make sure you have a mortgage professional help you with this math before making a decision.

2. When will I begin to see appreciation if I buy now?

This is a great question. Macro Markets, LLC is a company that studies housing prices. They started their Home Price Expectation Survey in 2010. They ask 100+ housing industry experts to project housing prices through 2015. The most current survey shows that the experts are predicting prices to soften until 2012. The experts then project prices to rise reaching a cumulative appreciation of over 10% by 2015.

 Purchasing a home today makes great sense from a financial standpoint. Think of the old axiom: You want to buy low and sell high. We may be at the low point regarding the COST of a home. But, this decision should not only be a financial one.That leads us to our third and final question:

3. Why am I buying a home in the first place?

This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. The Fannie Mae National Housing Survey shows that the four major reasons people buy a home have nothing to do with money:

  • A good place to raise children and for them to get a good education
  • A place where you and your family feel safe

      More space for you and your family

        • Control of space


        Bottom Line

        The COST of a home will probably remain relatively unchanged even if prices continue to depreciate. Don’t allow money to get in the way of you making the right decision for you and your family. In the long run, the finances will work in your favor anyway.


      What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the reason whether you decide to purchase or not.

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